Tax Tips & Traps

VOLUNTARY DISCLOSURE PROGRAM: Proposed Tightening

The Voluntary Disclosure Program (VDP) provides taxpayers (individuals, corporations, partnerships, trusts, etc.) the opportunity to fix incorrect or incomplete previously filed tax returns (or returns that should have been filed) with a reduction to penalties and possibly interest.

CRA recently released fairly substantial proposed changes to the current program, effective January 1, 2018. The proposals are expected to be finalized in the fall of 2017.

The proposals will create two tracks for income tax disclosures.

 

General Program (GP)

The GP is similar to the current VDP. Penalties will be waived, subject to the usual ten-year limit, criminal prosecution will not be considered and interest relief will be considered for years preceding the most recent three years, with 50% of interest generally being waived. Interest for the most recent three years will not be waived.

 

Limited Program (LP)

The LP will be applicable for disclosures of major non-compliance and will provide reduced relief. Examples of situations where the LP would apply include where there are: active efforts to avoid detection through the use of offshore vehicles or other means; large amounts involved; multiple years of non-compliance; sophisticated taxpayers involved; disclosures after CRA communications such as official statements regarding its intended compliance focus, or following CRA campaigns or correspondence; and other circumstances where a high degree of taxpayer culpability contributed to the non-compliance.

Under the LP, gross negligence penalties will be waived, and criminal prosecution will not be considered. However, all other penalties will be assessed. No interest relief will be provided.

 

No Relief

In addition to current ineligible submissions, a number of situations will no longer be eligible for the VDP, including, for example where there is: income from proceeds of crime; a disclosure from a corporation with gross revenue in excess of $250 million in at least two of its last five years; and a disclosure related to transfer pricing adjustments or penalties.

 

Conditions for Valid Disclosure

The current requirements that any disclosure be voluntary, complete, involve a penalty or potential penalty, and include information at least one year past due will remain unchanged. Some further conditions, such as the requirement that the applicant pay the estimated taxes owing on application are proposed. Payment arrangements supported by adequate security may be accepted.

 

Action Item: If you have a disclosure which may be impacted by these proposed changes, ensure to submit your disclosure prior to the proposed changes effective date of January 1, 2018.

 

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a blog such as this, a further review should be done by a qualified professional.

No individual or organization involved in either the preparation or distribution of this blog accepts any contractual, tortious, or any other form of liability for its contents.

For any questions… give us a call.

RETURN OF A GIFTED PROPERTY: Charitable Organizations Beware!

In a March 31, 2017 Technical Interpretation, CRA commented on the tax consequences of a charity returning a donated property to the donor. This could occur, for example, when a donation was made specifically for a project that had been halted.

Donor – Where the property is returned to the donor, the taxpayer is deemed not to have disposed of the property nor to have made the gift. As such, the portion of the original charitable donation tax credit or deduction related to the property may be disallowed.

Donee – Before returning a gifted property, the charity should review other provincial and federal legislation as it might affect their ability to legally return donated property. CRA also noted that returning property could be regarded as making a gift to a non-qualified donee or providing an undue benefit which could result in revocation of charitable status.

A qualified donee that issued an official donation receipt and later returns donated property must file an information return with CRA if the fair market value of the property is greater than $50 when it is returned, and the property is returned after March 21, 2011.

 

Action Item: If a charitable organization returns a gift to a donor, they should do so very carefully so as to avoid revocation of their charitable status.

 

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a blog such as this, a further review should be done by a qualified professional.

No individual or organization involved in either the preparation or distribution of this blog accepts any contractual, tortious, or any other form of liability for its contents.

For any questions… give us a call.

RETIREMENT INCOME CALCULATOR: Ensure you are Financially Ready

The Canadian Retirement Income Calculator (https://www.canada.ca/en/services/benefits/publicpensions/cpp/

retirement-income-calculator.html) provided by the Government of Canada estimates retirement income generated through a number of programs such as the Canada Pension Plan, Old Age Security pension, an individual’s employer’s pension plan, RRSPs, and other sources based on past and intended contributions.

When using this tool, individuals should have their CPP Statement of Contributions, financial information about their employer’s pension, most recent RRSP statement, and any other information related to savings that will provide for ongoing monthly retirement income.

 

Action Item: Use this tool to help assess your financial readiness for retirement.

 

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a blog such as this, a further review should be done by a qualified professional.

No individual or organization involved in either the preparation or distribution of this blog accepts any contractual, tortious, or any other form of liability for its contents.

For any questions… give us a call.

UNDERGROUND ECONOMY: Contractors, Online Sales, Farmers Markets…

In recent years, CRA has particularly focused on tracking underground economy activities. One way they are doing this is by obtaining information from key 3rd parties.

For example, recently CRA obtained details from contractor credit applications submitted to Rona. Consider the type of information that Rona would have: name, address, and other specifics that would help determine whether credit should be given. Presumably CRA could compare information reported on a credit application to the contractors’ tax returns.

CRA has also recently obtained information from Square Canada. Many smaller vendors accept payment by swiping the customer’s credit card through a little square plastic device connected to the audio jack of a phone or IPad. Square Canada provides this payment processing device, a Square Reader. Through a Federal Court Order issued to Square Canada, CRA obtained identifying vendor information and sale details associated with individuals or entities using these devices. The information request primarily focused on those with annual revenues of $20,000 or greater, for the 2012-2015 and part of the 2016 year.

It would not be unreasonable to expect that CRA could obtain similar information from other websites, web-based apps and organizations.

 

Action Item: Make sure to bring in all related sales information for discussion at tax time. Sales may, or may not, be taxable depending on the specifics of your case.

 

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a blog such as this, a further review should be done by a qualified professional.

No individual or organization involved in either the preparation or distribution of this blog accepts any contractual, tortious, or any other form of liability for its contents.

For any questions… give us a call.

CRA POLICY REVIEW & EMPLOYEE DISCOUNTS ON MERCHANDISE

EMPLOYEE DISCOUNTS ON MERCHANDISE: Change in CRA Policy
 

Historically, CRA has stated that an employee enjoying a discount on the purchase of merchandise from their employer is only taxable if a limited number of specified situations exist, such as where the employer makes a special arrangement with the employee or group of employees to buy the merchandise at a discount; the employee buys the merchandise for less than the employer’s cost; or the employer makes a reciprocal arrangement with another employer so that the employees of one employer can buy merchandise from the other at a discount.

While the above guidance is still published in certain CRA documents, CRA has recently released updated guidance which appears to limit this administrative position. In CRA Folio S2-F3-C2, CRA noted that where an employee receives a discount on merchandise because of their employment, the value of the discount is generally a taxable benefit. This would apply regardless of whether the discount was provided by the employer or a third-party.

This updated guidance appears to be consistent with a number of Court decisions.

 

Action Item: Consider your business policy in respect of discounts on merchandise for employees in light of this updated administrative position.

 

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a blog such as this, a further review should be done by a qualified professional.

No individual or organization involved in either the preparation or distribution of this blog accepts any contractual, tortious, or any other form of liability for its contents.

For any questions… give us a call.

 

EMPLOYEE DISCOUNTS ON MERCHANDISE: Change in CRA Policy

Historically, CRA has stated that an employee enjoying a discount on the purchase of merchandise from their employer is only taxable if a limited number of specified situations exist, such as where the employer makes a special arrangement with the employee or group of employees to buy the merchandise as a discount; the employee buys the merchandise for less than the employer’s cost; or the employer makes a reciprocal arrangement with another employer so that the employees of one employer can buy merchandise from the other at a discount.

While the above guidance is still published in certain CRA documents, CRA has recently released updated guidance which appears to limit this administrative position. In CRA Folio S2-F3-C2, CRA noted that where an employee receives a discount on merchandise because of their employment, the value of the discount is generally a  taxable benefit. This would apply regardless of whether the discount was provided by the employer or a third-party.

This updated guidance appears to be consistent with a number of Court decisions.

 

Action Item: Consider your business policy in respect of discounts on merchandise for employees in light of this updated administrative position.

 

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a blog such as this, a further review should be done by a qualified professional.

No individual or organization involved in either the preparation or distribution of this blog accepts any contractual, tortious, or any other form of liability for its contents.

For any questions… give us a call.

TAX FOR PRIVATE CORPORATIONS: Major Changes Proposed

On July 18, 2017, Minister of Finance, Bill Morneau announced the release of a Consultation Paper which focused on three tax practices that the Government considers to provide an unfair tax advantage to private corporations and their owners. These include:

 

  • Income Sprinkling – The Government is concerned that business owners can direct income to lower income family members who are not involved in the business, gaining a tax advantage unavailable to other Canadians. A common example is dividend sprinkling, where lower income family members own a share of the business and therefore can receive dividends, subject to their lower marginal rate. The Paper suggests taxing the unreasonable portion of dividends received by a family member of the principal of the business at the top marginal tax rate. Reasonability will be based on factors such as labour and capital contributions, and risk assumed. While this reasonableness test will apply on all dividends to family members of the principal, a more stringent criteria will apply for individuals between age 18 and 24.

 

  •  Passive Investment Income – The Government is concerned that it is unfair to most Canadians to permit the accumulation of passive investments with capital shielded from the higher personal tax No specific proposals were made, but a number of possible approaches were set out which will essentially eliminate the advantage provided by the deferral on funds retained for investment in private corporations.

The new rules will be designed in the coming months. The timing of any changes was not specified.

 

  • Capital Gains – The Government is concerned with plans to withdraw corporate funds as capital gains rather than dividends. The overall tax liability on capital gains is generally much lower than that of dividends, in particular for individuals subject to tax at the top marginal tax rate. The Government has proposed some more complicated technical measures which would limit this type of planning. 

These changes will apply to amounts received, or becoming receivable, on or after July 18, 2017 (i.e. the date the Paper was released).

 

Action Item: If you or your corporation utilize one of the above tax planning strategies, be aware of any legislated changes, their impact, and the effective date of the change. Stay tuned for an update on these issues coming in December 2017 . . .

 

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a blog such as this, a further review should be done by a qualified professional.

No individual or organization involved in either the preparation or distribution of this blog accepts any contractual, tortious, or any other form of liability for its contents.

For any questions… give us a call.

Marsha MacLean Professional Corporation